"The law is very clear! 'The monies recouped from the TARP shall be paid into the general fund of the Treasury for the reduction of the public debt.' "

Sen. Judd Gregg on Feb. 2 in a Senate budget hearing

The ruling

President Barack Obama has proposed a boost for small businesses, but Sen. Judd Gregg isn't hot on the idea.

In a hearing about the administration's latest budget, Gregg, a New Hampshire Republican, criticized the White House for proposing to use funds from the Troubled Asset Relief Program, an initiative originally intended to keep the banking system from collapsing, to help community banks lend to small businesses. Gregg said it violates TARP rules.

"The whole concept of the TARP was that as we recoup the money … we would use it to pay down the debt," Gregg said, responding to Obama's Feb. 2 proposal to transfer $30 billion from TARP to a new program that will support small-business lending. "Now that's not going to happen. … The law is very clear! 'The monies recouped from the TARP shall be paid into the general fund of the Treasury for the reduction of the public debt.' "

Peter Orszag, Obama's budget chief, defended the proposal.

"And remember, the purpose of TARP was to address problems in our financial markets … and it has been remarkably successful in bringing credit spreads back down to normal levels. One of the lingering problems in our financial markets, however, is access to credit for small businesses," he told Gregg.

On one hand, the TARP legislation is quite clear: Section 106, Part D of the TARP legislation: "Revenues of, and proceeds from the sale of troubled assets purchased under this Act, or from the sale, exercise, or surrender of warrants or senior debt instruments acquired under section 113 shall be paid into the general fund of the Treasury for reduction of the public debt."

But, for a previous PolitiFact ruling, we talked with budget experts who said that Congress could get around those rules in a number of ways. For example, Congress could rescind the TARP money and then, in a separate action, use it to pay other expenses, said Brian Riedl, lead budget analyst for the conservative Heritage Foundation.

"Congress can of course vote to spend new money on anything it wants," Dean Baker, an economist and co-director of the left-leaning Center for Economic and Policy Research in Washington, told us in December.

Back to Gregg: He's strictly talking about what the law says, that TARP money cannot be used for anything other than deficit reduction. He's right, and we find his claim True.

PolitiFact staff writer Catharine Richert. This PolitiFact has been edited for print. For the full ruling — and others — go to PolitiFact.com.